US tech giants slow manufacturing shift out of China

Hello, Kenji here in Hong Kong. Last week, Nikkei Asia’s Taipei team reported on how the pandemic-fuelled demand for tech gadgets was fading. This week, they have another exclusive on how the latest wave of Covid-19 has disrupted Big Techs’ production relocation plans from China to Vietnam (The Big Story). While Beijing’s tech crackdown is pushing equity investors to pivot from ecommerce to chips and biotech (Mercedes’ top 10), mainland internet entrepreneurs are turning away from US dollar funding in favour of renminbi (Smart data). Please do not miss the interesting research imagining Xi Jinping on LinkedIn (When sages speak). See you all next week.

The Big Story — Exclusive

Covid-19 is disrupting plans by Apple, Google, Amazon and others to shift production from China to Vietnam, according to this exclusive in Nikkei Asia.

Key developments: Google’s upcoming Pixel 6 smartphone range will be built in China, even though the company had planned to move production to northern Vietnam early last year, sources said.

Apple will start mass-producing its latest AirPods earphones in China instead of in Vietnam as previously planned. The company still hopes to move about 20 per cent of new AirPod production to Vietnam.

Apple’s plan to bring some MacBook and iPad production to Vietnam has also been put on hold owing to a lack of engineering resources, an incomplete notebook computer supply chain and the dynamic Covid situation.

Upshot: Tightened border controls in China and Vietnam because of the pandemic are slowing the planned shift in production of critical tech products from China to Vietnam. But the delay is likely to be temporary.

Mercedes’ top 10

1. Investors are swapping Chinese ecommerce stocks for semiconductor and biotech shares to sidestep a regulatory crackdown on consumer tech. (FT)

2. A Chinese government fund has taken a small stake in a domestic operating unit of ByteDance, the owner of short video app TikTok. (Nikkei Asia)

3. Facebook and Google are going into the deep, laying thousands of kilometres of internet cables across Asia’s ocean floor. (FT)

4. Hong Kong has played a pivotal role in the short history of cryptocurrencies. Now, its industry is facing an existential crisis as China cracks down. (FT)

5. China is putting pressure on carmakers to use its homegrown satellite system Beidou over the US GPS system. (Nikkei Asia)

6. Tencent Music is considering delaying its $5bn Hong Kong IPO until next year, in hopes that regulatory pressures will have eased. (Nikkei Asia)

7. Japan’s Hitachi is developing a system to verify whether factories are carbon neutral as emissions become increasingly important for investors. (Nikkei Asia)

8. Chinese smartphone assembler Wingtech has completed a swift acquisition of the UK’s biggest chip plant despite security concerns. (Nikkei Asia)

9. The FT’s Leo Lewis reflects on the gaming industry at age 50 and finds a sector grappling with its sense of self. (FT)

10. Last year, a human fighter pilot lost to an artificial intelligence-powered adversary in a simulated dogfight. The Tech Tonic podcast looks at the US-China AI arms race. (FT)

Our take

China Telecom’s forthcoming Shanghai listing seems to carry special importance for the Chinese leadership, given tensions with the US.

After being forcefully delisted in New York in May, Beijing allowed the state-owned telecom to skip the notoriously long queue to go public in the mainland. The size of the issue had to be grand, too: it is set to raise up to Rmb54.2bn ($8.4bn), one of the largest-ever IPOs in the mainland market.

Beijing was not taking any chances, with almost half of the shares allotted to 20 strategic investors. While China Telecom chair Ke Ruiwen said last week that the listing would be a “turning point to drive corporate reform into a deeper level,” it was not clear how his words would be carried out, as 16 of the pre-determined investors are state-owned. Moreover, even after the Shanghai listing, the company’s unlisted state-owned parent will still own more than 60 per cent of total outstanding shares.

A potential change agent could be the three listed enterprises taking part, but they are entitled to just a 0.1 per cent stake each. Even so, Chen Rui, chair and chief executive of Hong Kong-listed online video app operator Bilibili, said he was “excited” to partake in the deal “as state run enterprises are returning to their home capital market”.

The decision could be politically correct for a private tech company to forge a capital relationship with a strategic state enterprise. But Citi’s analyst covering Bilibili, wrote: “We are surprised by the announcement and do not think an equity stake investment is necessarily needed for strategic business co-operation.” Exacerbated by a renewed attack from state media against gaming and video platforms, Bilibili’s share price fell for five straight days after the investment was announced, losing about 20 per cent of its value by Tuesday.

— Kenji

Smart data

Mainland start-ups are increasingly taking Chinese money over foreign funding. There are early signs that the preference for renminbi, long obvious in politically sensitive sectors such as defence, is now expanding, according to an FT scoop.

There have been 23 renminbi fundraisings and no dollar deals for internet start-ups in August, according to Pedata.cn, a Beijing-based financial data provider. One reason is that raising dollars forces internet start-ups to create an offshore structure called a “variable interest entity” to bypass China’s foreign investment restrictions. But VIEs have become increasingly sensitive amid China’s sweeping crackdown on tech companies.

Spotlight

Manish Maheshwari is being called back from India to the US. By any standards, the Twitter executive has had a torrid few months.

Maheshwari, who became head of Twitter India in 2019, has been personally named in at least two police reports in India as frictions between New Delhi and the US social media giant escalated. In one case in June, he was accused of “treason” after Twitter published a map that marked the region of Kashmir as a separate country.

The company’s New Delhi office was also visited by Indian police after its moderators labelled a tweet by the national spokesperson of the governing BJP as potentially misleading, according to media reports.

Maheshwari will start a new role in the company’s San Francisco headquarters as a senior director of revenue strategy and operations. His successor has not been appointed.

When sages speak

• The Korean way with data: Evan Feigenbaum, Michael Nelson and several other authors explore how South Korea is unleashing the power of data in this excellent report for the Carnegie Endowment for International Peace, including successes, failures and recalibrations.

• What if China’s leaders were on LinkedIn? This interesting research project by Damien Ma at Macro Polo shows how the network of Xi Jinping, China’s leader, might have changed over the years.

• GGII, a Chinese research house, is predicting renewable energy storage capacity in the country will boom 10-fold by 2025. Important trend (link in Chinese).